NASAA Proposes a Model Crowdfunding Exemption

I wrote earlier this month that the urgent push for crowdfunding legislation has waned in the Senate. Well, it appears that the North American Securities Administrators Association (the “NASAA”) is using this window of opportunity to roll out a proposal of its own. NASAA’s proposal joins H.R. 2930, S. 1791, and S. 1970 as another possible alternative for handling crowdfunding under state and federal securities laws.

NASAA claims that its proposal represents a “compromise” between the competing federal proposals. Highlights of an early draft being circulated among NASAA members include the following key points:

A limit on the aggregate offering amount of $500,000 over any 12-month period;

A $1000 cap on the amount of investment raised from any single investor;

The use of an intermediary that, in turn, is registered as a broker-dealer (albeit one freed of certain restrictions);

A notice to be filed prior to the offering with the securities regulator of the issuer’s home state;

A disclosure document that informs investors about the issuer, the offering, and various risk factors; and

A ban on general advertising and investor communications, apart from reference to, and use of, an intermediary’s web site.

NASAA’s proposal, obviously, advocates retaining state authority to regulate securities offerings made pursuant to its proposed exemption. This is a significant difference between it and both H.R. 2930 and S. 1791, and will no doubt generate significant debate. But, as the proposal itself acknowledges, it is not viable without federal implementing legislation of some kind. A significant question therefore remains whether any such federal legislation will carve out an exemption that allows states to retain the control that NASAA’s proposal contemplates.